AMIRTHAM AMMAL V Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference raises a question as to the character of a single transaction effected by the assessee on December 5, 1960, whether it was one of an adventure in the nature of trade or an isolated dealing in capital asset giving rise to capital gain. The assessee, who happened to be the wife of one of the directors of a private limited company by name Murugan Transports (P.) Limited, purchased from her husband's brother on August 6, 1960, 37 shares in that company and sold the same at a profit on December 5, 1960, to the brother-in-law and wife of one Chinnaswami Pillai, the managing director of the very same company. Two of this gentleman's daughters were also directors, all the three of whom together held 200 shares as on August 5, 1960. His son possessed 42 shares which he had purchased from one Sundaralinga Asari. On August 6, 1960, one L. G. Varadarajulu, the brother-in-law of the assessee, transferred 45 shares to his brother's wife and 50 shares to the wife of another brother of his. On December 5, 1960, the assessee sold 30 shares to Karupaiah Pillai, said to be the brother-in-law of Chinnaswami Pillai, and 7 shares to the latter's wife, Angammal. As on December 5, 1960, Chinnaswami Pillai and his relatives together held 414 shares and a stranger by name, Sundaralinga Asari, already referred to, had 101 shares. The assessee made a return for the year ending March 31, 1961, showing a capital gain of Rs. 14,800 on account of her sale of 37 shares. The revenue as well as the Tribunal treated the gain as from an adventure in the nature of trade and it was charged to tax as business income. At the instance of the assessee this reference of the question comes before us :

(2.) WHETHER a given transaction, isolated as it is, as in the present reference, is a gain made out of conversion of an investment in a capital asset or revenue derived out of a transaction amounting to an adventure in the nature of trade, is always a mixed question of law and fact. Decided cases will help only to a certain extent for extracting the general principles-to decide the character of a transaction as of a trading one or an adventure in the nature of trade, but their application to particular facts will depend upon the total impression the court may form of them in the light of those principles': Commissioner of Income-tax v. Kasturi Estates (P.) Ltd. and Sarojini Rajah v. Commissioner of Income-tax, to each of which one of us was a party, deal with the general aspects to be borne in mind in deciding a question of this kind. We do not think it necessary, therefore, to deal with them at any length. So far as we are aware, nobody has defined trade exhaustively or precisely, nor is it wise or possible to do it. But, at the same time, it is a term well understood by the mind and so too is the case with an adventure in the nature of trade. In Sarojini Rajah v. Commissioner of Income-tax, reference was made to the considerations that bear upon the identification of badges of trade, to wit, the subject-matter of the realisation, the length of the period of ownership, the frequency of a number of similar transactions by the same person, supplementary work on or in connection with the property realised, the circumstances that were responsible for the realisation and the motive; They were all taken from the report of the Royal Commission on the Taxation of Profits and Income, 1955. Each of these badges was taken up and illustrated in that decision. While referring to these badges, this court cautioned that it did not accept these badges as comprehensive or exhaustive but thought that they were of considerable assistance in deciding the character of a transaction as of a commercial character. Atte. referring to Ram Narain Sons (P.) Lid. v. Commissioner of Income-tax and extracting the particular observations, this court posed the question as to what were the legal requirements associated with the concept of trade or business, and proceeded :